Swiss Re and LSE join forces in research partnership
Insurers play a central role in facilitating financial market resilience by providing risk transfer solutions, and by investing premiums into the real economy. Swiss Re engages with all stakeholders with the aim of creating an environment conducive to long-term investment and sustainable economic growth.
An example of our commitment to financial market resilience is the research partnership between the recently formed Swiss Re Institute (SRI) and the London School of Economics (LSE) focusing on monetary policy and long-term investment. The partnership, which continued in 2017, examines two questions. The first concerns the changing structure of central banks' balance sheets and potential implications for the functioning of markets.
Since the global financial crisis in 2007/08, the combined balance sheet of the world's five largest central banks had increased from about USD 7 trillion to over USD 20 trillion by the end of 2017. In that time, central banks have become the dominant investors in financial markets, at the cost of the private sector. Among others, the private sector includes the insurance industry and pension funds, and therefore also the households investing their savings through insurance and pension products. It is key that capital markets are strengthened so that this private risk capital is put to its best use as financing for the real economy.
The second research question focus is the effect of loose monetary policy on structural reform of the economy. Empirical results show that loose monetary policy leads to a slowdown in the pace of structural reform implementation. The prevailing monetary policy environment of recent years has allowed governments to borrow at essentially zero cost, and that has reduced the incentive to implement reforms.
The SRI/LSE research has been presented at several forums, including the annual Jackson Hole Economic Policy Symposium (organised by the Federal Reserve Bank of Kansas City) and at the Peterson Institute for International Economics. Furthermore, together with the LSE, we hosted two roundtable discussions bringing together central bank officials, policy makers, private-sector agents and researchers. Looking ahead, Swiss Re will continue to contribute actively to the dialogue. Our goal is to strengthen the capacity of the insurance industry as a risk absorber and facilitator of financial market and economic resilience, and to ensure that investors are able to act on a long-term basis.